Wednesday, November 5, 2014

The leverage point is about how to make the right decision at the right time with the right information by the right talent.

Making business decisions and crafting & executing strategy are the most important tasks for modern business leaders. Statistically, about two third of strategies fail to achieve the expected results, it’s alsoa common business symptom to lead business failures due to the bad decision making. What're the root causes for such ineffectiveness? Is decision-making an art or a science? Is planning process the biggest benefit or barrier to good decision making?

The decision and strategy making process should be robust, not rigid: The composite strategy with sub-components approach is focused on the individual business units and the specific circumstances each face, can be used and updated when needed without respect to a rigid planning calendar, is objective and appropriately quantitative. It relies on an agreed/ common approach to making decisions, but not a predetermined set of "one size fits all" planning. The implementation plan is then driven by the need to put the resources in place for each business function to do its part in accordance with the agreed strategy -- with look-backs, and, if necessary, redirections focused on actual achievement of specified milestones and outcomes for the most critical uncertainties (often using an "implementation tree" as a planning tool).

Systems thinking is crucial in decision making and strategic planning: The development of robust business strategies is greatly aided by beginning with a rich problem framing process; which delivers (1) robust strategy alternatives (defined as executable sets of resource allocation decisions), (2) agreed criteria on which the strategies ought to be compared, (3) an understanding of the risks/uncertainties facing the business unit in executing the strategy and (4) an agreed visual model of how the decisions and critical uncertainties drive value. Done well, this approach can engender tremendous enthusiasm from business teams and leadership to move smartly through the subsequent analytical work, analysis of the options, and synthesis of the best strategy for the business to pursue.

Information is flowing, decision making needs to be dynamic: It's not like information stands still so leaders can "already know and be ready to execute a solution.” The question would be: Why wouldn't some new information arise during the strategy development sessions? How does the leader know everything and be ready to execute a solution?! Some say only wish leaders made decisions on "fact-based" data. One, they don't have the time to read facts. Two, most of the fact-based data is given to them by their direct reports and most of whom get it from their direct reports, whom either can't connect the dots or does it really well but then their bosses can't ... so it’s easy to get misinterpreted ... Three, in most cases data captured may be fact based, but it’s either out of date or irrelevant or the data has no integrity ...So, most decisions are made on the basis of who they know, how much they like them and how do they look in political circles. the bad decision is made neither via art or science, but via playing politics.

The business planning and decision making is part and parcel of strategic development and execution. The logic steps may include:

(1). Articulate the vision and well define the objectives and goals which are stretched out, but realistic to achieve.

(2). Generate some distinct alternatives that could pursue the objectives.It means even there’s only one destination but it may have multi-route to get there. If people try to come to a consensus via one single choice, this can overlook key points of information.

(3). Develop a composite team perspective on what are the likely outcomes of each alternative. Team perspective is crucial for novel decisions because no individual has all the necessary expertise. The team perspective should usually be specified probabilistically because knowledge about the past is only an imperfect guide to what the future holds. Also, use the team perspective (usually embodied in a computer model) to identify the most promising alternative.

4). Examine sensitivity analysis results to identify possible ways to further improve the promising alternative. The probabilities can be handled in identifying most promising one, either with a decision tree or Monte Carlo simulation (Monte Carlo methodsorMonte Carlo experiments are a broad class of computationalalgorithmsthat rely on repeated random sampling to obtain numerical results; typically one runs simulations many times over in order to obtain the distribution of an unknown probabilistic entity-Wiki). Monte Carlo simulation is flexible to deal with many decision situations day by day, sometimes dealing it face to face, sometimes in the group! Besides all that tools, a clear structured dialog and thinking process can create alternatives that gain certain value to the whole.

Therefore, planning is beneficial for thinking slowly when making the decision, and it’s important to apply system thinking in strategy making as well. However, with rapid changes facing in business today, overly rigid process or static information may also become the big barrier in decision making. The leverage point is about how to make the right decision at the right time with the right information by the right talent.